Panama’s Economic Outlook for 2014

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Panama is rightfully the economic rising start of Latin America, and 2014 is expected to continue the trend. With economic growth in 2013 estimated at 9%, 2014 should see a very similar growth rate, with a potential of an increased rate. While the global economy is slowly working itself out of a economic meltdown, parts of the E.U. remain troublesome, and the U.S. economy is looking to regain its strength with increased job growth, increased income gains, and resurgence of the real estate market.

Outsourcing, telecommuting, and increased access to information are all leveling the playing field for once isolated nations, and economies are becoming more reliant on the global market than ever before. But when the U.S. credit crisis and real estate market collapse sent ripples throughout the world, Panama held strong. While the past 6 years have shown a shaky economic recovery across the board, Panama continued to post positive growth rates.

2014 is poised to be another landmark year for Panama, and here is why we believe so:

Panama economic outlook 2014Economic Growth
From 2004 to 2008 Panama’s economy grew approximately 8%. While most of the world fell into an economic crisis Panama grew by 4% in 2009. In 2010 the economic growth was 7.5% and above 10% since then. The IMF predicts 9% growth in 2013. Panama’s economy stands above all of Central America and most of South America.

Foreign Investment
In 2012 foreign direct investments in Panama was nearly $3 Billion USD, accounting for 10% of Panama’s $30 billion GDP. Investments create jobs, jobs lower the unemployment rate, which ranged from 8% to 12% in 2005, to today’s rate of 4%. On the other hand, unemployment has risen throughout Central America.

Population Growth
Panama City’s population is expected to increase by 40% to 2.2 million by 2025. Given, that is 11 years into the future, a year-by-year incremental growth rate is expected not only in the city, but in blooming beach and mountain communities popular amongst foreigners and retirees.

One down side of population growth has been increased traffic. Panama’s strong economy has increased the number of cars on the roads in Panama City by 63% since 2010. This is causing a traffic gridlock, but hopefully traffic will be eased in late February of 2014 when the new metro subway system opens. Plus, major road improvements in Panama City should help alleviate the problem too.

Improved Infrastructure
Infrastructure, including good roads, consistent electricity, drinkable water, high speed internet, and efficient airports are all signs of a strong economy, and Panama has them all. Not to mention, 2013 showed new highways, improved city roads, a new subway system, new bus system, and a new international airport.

Job Opportunities
The unique problem Panama faces today is the lack of skilled workers to fill all the new job opportunities. To fix this problem President Martinelli issued several executive decrees making it easier for skilled workers to migrate to Panama in 2014 and to obtain work permits.

This is definitely an area of concern. If Panama cannot fill the void of unskilled labor, the economy and country’s future remains at risk. Panama cannot solely depend on foreigners for skilled labor. More of a hope for 2014, rather than a prediction, is an increased investment in public education, including infrastructure, resources, and teacher salaries.

However, as Panama aspires to become the next Singapore, which pulled itself up after World War II to become a First World nation. Singapore has one of the highest living standards in the world, is very clean, and it serves as the regional financial and transportation hub for Southeast Asia. Panama in 2014 would like to become such a hub for all of Latin America. And it is important to note that approximately 1/3 of Singapore’s population is made up of non-residents. So, it is possible that Panama can do the same, and fill the gab in local skilled labor with foreign support.

Real Estate
The Panamanian real estate market was one of the factors that helped the economy skyrocket. Long seen as a boom with a bust in sight, that outlook has since been washed away. The real estate market has proved resilient, and though the boom days are over, steady growth rates will continue into 2014.

Expanded Canal
The Panama canal is already a revenue generating machine for the country. As shown in our infographic, since the U.S. handed over the canal in 1999 not only has the country been on a fast economic rise, but also canal revenue has tripled to $1.85 billion in 2013. Since the canal expansion project is near completion, which will significantly increase the traffic of ships passing through, revenue is expected to rise even more. And with a large sum of new revenue at the disposal of the government, we expect to continue to see increased investment in the country’s well being.

Tax Incentivized Business Zones
Tax incentivized zones, like the Colon Free Zone, and Panama Pacifico, are expected to continue to grow. The canal expansion will surely provide an increased trade capacity for businesses operating in the Free Zone, while both areas will continue to attract more multinational corporations. So, expect to see more corporations relocate to Panama in 2014.

In 2012, Panama was recognized by the New York Times as the top place to visit. The story of course help put Panama on the tourist destination map, but rightfully so. Panama beach areas and mountain towns are a major draw for tourists. In 2013 Panama welcomed more than 2 million tourists, and 2014 is expected to draw even more.

We’re interested to hear what your predictions and outlook are for Panama in 2014. Please feel free to put your thoughts in the comment section below.

About Manoj Chatlani

Manoj Chatlani is a Senior Partner at POLS Attorneys, a full-service law firm in Panama City, Panama. Specializing in offshore services, including asset protection, estate planning, offshore banking, and offshore corporations, as well as Panama immigration and real estate transactions, POLS Attorneys offers clients a streamlined solution to all their Panama legal needs. Manoj is a Panamanian lawyer and holds a law degree from USMA and earned a Masters in Communication Law and Panama Tax law.

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